October 13, 2006 | Volume 3, Issue 2
Dr. Jonathan Gruber
Professor of Economics, MIT
Dr. Jonathan Gruber is a Professor of Economics at the Massachusetts Institute of Technology, where he has taught since 1992. Dr. Gruber’s research interests include public finance and health economics. HSR spoke recently with Dr. Gruber to discuss his involvement in the high-profile design of a “universal” health care coverage plan for the state of Massachusetts.
HSR: Can the new Massachusetts health insurance plan be a model for other states or does the economy of Massachusetts make it a unique experiment?
Dr. Gruber: I think it’s not really the economy of Massachusetts that makes it so unique but some financing situations. Basically, the structure of this thing can work anywhere. The only trick is financing. Financing is the key. Massachusetts has two big financing advantages. One is that there was a large federal transfer, about $385 million a year, which the federal government was threatening to take away but was willing to let Massachusetts keep if we did comprehensive health reform. So not only was that a lot of money, but it was sort of a bullet that we had to face as we considered reform. The other is that in Massachusetts, like many other states, hospitals deliver a large amount of uncompensated care to the poor, care for which they’re not reimbursed. But in Massachusetts, they were already reimbursed for that out of a pool that’s collected from business taxes. So basically, that pool could be rededicated to covering the uninsured without having to raise new taxes. So there are two answers to your question: a) yes, it could work anywhere – there’s no reason this structure couldn’t work anywhere – but b) Massachusetts was in a relatively unique situation in terms of financing.
HSR: That was due to the uncompensated care pool?
Dr. Gruber: Right. You could think of it as there’s this implicit tax throughout America – which is about $40 billion a year – which hospitals deliver care for which they’re not reimbursed and then they raise prices to insured patients. In Massachusetts, that implicit tax has been made explicit by essentially taxing businesses and insurers as they put this money in a pool, and the hospitals are going to take their uncompensated care out of that pool. As you can imagine, it’s a lot easier to rededicate an existing tax than to levy a new tax. So Massachusetts has the advantage if they’ve already sort of made that implicit tax explicit. That gives them an extra source of money as well as the federal transfer.
HSR: If you do see this system as applicable to other states, can you predict any time line for how and when this might take place?
Dr. Gruber: There are a small number of states that might hope to do this without much federal intervention, but if you wanted to see widespread adoption across the states, I think you would need serious federal seed money to make it happen. Basically, there are a couple of states that are in a relatively similar situation as Massachusetts, where there are a low number of uninsured – which [makes] the job less costly – but I think, by in large, if you’d want to see it in more than a handful of states, the kind of truly comprehensive reform we’ve done in Massachusetts, then you’d need the federal government to probably kick in with some money.
HSR: Why did Massachusetts select this type of model? Was the focus to avoid excessive state spending or was it to avoid the backlash of previous “universal health care” ideas?
Dr. Gruber: Well, Governor Romney really sort of chose this model. I helped design it but it really was his decision to go with this model. I think the thinking was that the failure of previous models [was in] essentially letting the tail wag the dog – that [is], shaking up the entire health system to cover the relatively small fraction of people who are uninsured. I think what this plan and plans like this try to do is say “Look, let’s leave public insurance in place where it’s working, let’s leave employer insurance in place where it’s working, but let’s try to fill that gap,” which is largely people who don’t have employer insurance available. So I think it was a truly incremental approach, but at the same time very private sector based which obviously appeals to a Republican governor. I think the idea was to build a lot of private sector models that work. By in large, people are pretty happy with their employer-provided insurance, especially if they work for big firms, so let’s build on that model and offer other people in the state the kind of purchasing advantages that people in large firms have.
HSR: As far as the implementation of the current plan, have the state encountered any problems?
Dr. Gruber: I think the big problem is the money. Basically, you have people on the left who say that there should be free health care for everybody and then you have budget hawks who are saying, “Look, we don’t have the money to make that happen.” The big tension we’ve been facing is how do we walk that line between making it affordable, but also not breaking the bank. It’s a bit hard to tell because a) defining affordability is really in the eye of the beholder – there’s been a huge debate over what’s affordable and what’s not – and b) even if you could solve that problem, we don’t really know what’s going to break the bank because that depends on a host of complicated responses that have to play out. So it’s really early to tell. I think right now we’re trying to walk the line between those concerns, and it’s a challenging line and it’s just too early to tell if we’ve nailed it or if we’ve erred on one side or another.
HSR: So it’s fairly early in the implementation stages still?
Dr. Gruber: No, I mean, it’s early and late. It’s early in the sense that, temporally, the bill just passed; it’s late in the sense that we’re on this incredibly ambitious schedule. Today I’m actually driving on my way to vote on the subsidy levels we’re going to offer to low-income people. We’ve already decided the benefits package, and shortly thereafter we’re going to start worrying about those who aren’t low-income. So it’s early temporally, but it’s a very, very fast moving process.
HSR: How has the plan been received by those that are uninsured and how has it been received by employers? Has there been any survey or any kind of discussion with either of those two sectors?
Dr. Gruber: I would say that everyone is in a pretty similar position, which is cautiously optimistic. I think employers are pleased that they didn’t get hit harder in the bill – they only ended up with a relatively minor charge of $300 a year if they don’t offer health insurance. I think the uninsured are happy about the opportunity but wary that it is going to cost too much. So I think that everybody is in sort of a “wait and see” mode. Part of the way this legislation passed was by punting a number of the most important decisions to this connector board that I’m on and basically I think people are waiting to see how the board handles these decisions before they drop final judgment on the bill.
HSR: What is the basic structure of the Connector that is supposed to help Massachusetts residents locate affordable insurance to purchase?
Dr. Gruber: Basically, you could think of the “connector” as the kind of purchasing mechanism that you have at your local large firm. So if you were a professor at Carnegie Mellon or even probably a student at Carnegie Mellon, you get a brochure [with] the number of plans you can choose from and they have different prices, and essentially, it’s a facilitating mechanism through which individuals can get the kind of benefits of large proof purchasing that people now do at large firms. So it really is nothing fancy other than just sort of giving exchange where people can purchase health insurance. The structure itself is not particularly fancy. What’s difficult is that the legislation punted essentially all the tough decisions to the connector like what should be in the benefits package, how much should people pay for it, and how should it interact with employer provided health insurance. There is a huge number of hard decisions that have to be made about the specifics, but the basic structure is not that complicated.
HSR: What have you found in your own research regarding the way health care benefits influence decisions people have to make about employment (i.e., Do large numbers of people stay in jobs they’d otherwise leave or do small startups forego starting businesses because of the way health insurance is tied to employment in the U.S.?)
Dr. Gruber: I’ve done a lot of work in this area as have others and I think we have a pretty good understanding that there’s a significant amount of what we call job loss of individuals being afraid to leave their job because of a fear of losing health insurance, particularly, sicker individuals, and I think that’s a real problem in the economy. At one level, it’s a disadvantage of the employment-based system, and there are arguments for scrapping that. At the other level, given the political realities that we’re not going to scrap that, one would hope that the kind of system Massachusetts is setting up where you have an alternative outside your employment setting, some way to get health insurance that will help ease that sort of problem because I think that is a disadvantage of our current system.
HSR: Where do you see, if at all, the prescription drug coverage issue falling into this larger health insurance issue? Is this another attainable goal?
Dr. Gruber: Yeah, absolutely. Prescription drug coverage will be included in all the plans. There’s a debate about how generous to make it but, for instance, right now, we’ve designed the plans for the low-income population to include prescription drugs relative to commercial insurance, [including] average or even modest co-payments. So prescription drugs are definitely in. I think the whole prescription drug debate with Medicare arose out of sort of an historical anomaly where Medicare was set up in an era when prescription drugs weren’t that important and when out-patient prescription drugs weren’t that important. I think everyone realizes now, and 99% of private health-insurance plans realize as well, that you have to include prescription drugs as part of a health package that’s really part of basic health coverage.